OREANDA-NEWS. August 20, 2013. Changsha Xiang'e Energy-saving Technology Co., Ltd. obtained a green credit loan from Industrial Bank (IB) to support its three energy performance contracting (EPC) projects in Shanxi Province.

As learnt by the reporter, not only is it an ordinary energy conservation and emission reduction loan, but also the first implemented loan project under the energy conservation and emission reduction loan program (phase III) released by IB in collaboration with the International Finance Corporation (IFC).

It is reported that the energy conservation and emission reduction loan program (phase III) released by IB in collaboration with IFC is the first one in China for providing special financing services for the energy conservation and emission reduction of SMEs in the underdeveloped areas. Adopting the loss sharing mechanism, the program is equivalent that IB purchases insurance for the financing of SMEs, thus providing a solution to the financing difficulty of many “asset-light” SMEs.

Zou Qiong, chief financial officer of Changsha Xiang'e Energy-saving Technology Co., Ltd., told the reporter that the company where she works had also tried to get financing from other banks before, but always failed to obtain loans yet as it could provide only a limited amount of assets as guarantee with a single energy-saving project which is characterized by a relatively limited scale. “Fortunately, the loan under the energy conservation and emission reduction loan program (phase III) released by IB in collaboration with IFC solved most of the recent financing demands of the company”, said Zou Qiong.

Green finance has always been an area which IB pays attention to and prioritizes for development, the reporter also learns, IB will also lay stress on the protection and control of water resources in this year apart from the energy conservation and emission reduction loan program (phase III) targeting at SMEs.

Energy conservation and emission reduction loan program (phase III) riveted on SMEs
Concentrating on serving SMEs, the energy conservation and emission reduction loan program (phase III) released by IB this time provides the “insurance” mechanism to share losses with IFC.

Zou Qiong remarked: “It solves nearly 70% of our financing needs this time, so we are more confident to grow bigger and stronger in the future.”

The company in which Zou Qiong works is mainly engaged in EPC business. Recently, the three EPC projects carried out by the company received the loan support of IB green finance, with a total of RMB 3 million and a financing term of three years. The funds solved the financial bottleneck checking the company's business development.

As learnt by the reporter, the loan is also the first implemented loan project under the agreement on energy conservation and emission reduction loan program (phase III) released by IB in collaboration with IFC. The greatest feature of the energy conservation and emission reduction loan (phase III) lies in that the energy conservation and emission reduction loans extended by IB under the program will be solely used to serve SMEs, namely those with total assets less than RMB 100 million and the total operating incomes below RMB 100 million in the previous year or a total of employees less than 300 in the previous year.

The program is released with a view to offering a solution to the financing difficulty of SMEs in the field of green finance.

Because many energy-saving service suppliers are “asset-light” SMEs, they will often encounter the predicament of lacking guaranties like fixed assets when applying for financing from banks. As a result, these enterprises often encounter financing bottleneck during their development as the risks are hard to control with conventional measures.

Zou Qiong told the reporter: “Many banks at home are also developing green finance services. After we had contact with some banks, they were not certain about our projects, so the loan was not granted for a long time. Finally, we received the loan from IB.”

In addition, based on the original project loan, IB also further granted another loan type, working capital loan, combining project loan and working capital loan into one.

It seems that there is a big risk to working capital loan, but as far as IB is concerned, the risk cannot be greater compared with the business under energy conservation and emission reduction loan program (phase III) and other green finance businesses.

“The certification of these projects are controlled by both IB and IFC, so the assessment and certification are stricter than those on common loan”, said Liang Pingrui, General Manager of the Sustainable Finance Department of IB. IB will invite a third-party institution to carry out certification for these projects, assessing their technologies, capabilities and performance. The bank will also carry out strict examination and long-term track over the purposes and flow direction of working capital. Enterprises should actually use the loans for energy conservation and emission reduction and the energy efficiency should be greater than 15%, which is the basic requirement.

Stress on the control of water environment in this year
Green finance has always been an area which IB pays attention to and prioritizes for development and has also gradually grown into a characteristic business that the bank is proud of. In this year, apart from conventional green finance products, the protection and control of water resources also become an important area of IB's green finance.

“We plan to set up a department specialized in green finance in each branch and develop the business into a specialized and bigger one regionally.” General Manager Liang cannot conceal his excitement upon the mention of green finance.

In fact, as the first “Equator bank” in China and the forerunner and advocator of domestic green finance, IB has long seen a broader green finance area from the energy conservation and emission reduction loans.

As learnt by the reporter, IB releases the program of “Green Finance • Tactics (2013)” this year, which is a brand-new and multi-layered business model covering products, financing models and solutions.

At the layer of product, besides the general products of conventional banking, it also includes characteristic products such as financing for energy performance contracting (EPC) by using the future usufruct as the pledge, contract environmental service based financing, carbon assets pledge based financing, emission right pledge-based financing, and energy conservation and emission reduction (CHUEE) financing, etc.

At the layer of model, it provides five service models including financing for the production increase of energy-conserving and emission-reducing equipment manufacturers, financing for utilities service suppliers, financing for franchised projects, financing for energy management companies (EMCs) and financing for financing lease companies.

The integrated solutions include carbon trading, emission right trading, conserved energy trading, utilization and protection of water resources, integrated services for industrial chain, industrial consolidation, and financing for special projects.

Furthermore, the specialized team for green finance of IB will also develop individualized reconstruction schemes based on the features of all-chain demands of each segment industry in the area of energy conservation and environmental protection.

The reporter learns that the protection and control of water resources will become an important area of IB's green finance. At present, the financing support of IB to the area of water resources approaches 1/3 of its financing for green finance.

The issue of water resource often has a broad coverage, and watershed control is hard for a bank. Therefore, IB gives priority to district-level cities for the overall control of water pollution in this year.

The bank just held “Beautiful China Tour - Beautiful Yanzhao – Hebei Government-Banking-Enterprise Conference on Green Finance” in Shijiazhuang this year, stressing on projects concerning the protection and control of water resources. It promised to make an investment of RMB 50 billion in the environmental control in Hebei and give preferential loan terms and interest rates. The relevant official-in-charge of the Environmental Protection Department of Hebei gave a full recognition to the efforts of IB in the field of green finance, indicating that the campaign of “Beautiful China Tour” launched in Hebei fully corresponded to the actual needs of environmental protection in the province, which would spare no effort to support the campaign and make green finance a booster for pollution control and emission reduction.

As disclosed by IB, the bank will launch similar programs in other places, such as Jinan, Wuhan, and Nanjing, so as to push forward the water environment control across China.

Green finance still in need of policy support
For a great number of enterprises, especially, SMEs, engaging in the area of green finance, there are still many obstacles for them to gain financing support for their development. Many SMEs encountered a “glass ceiling” in trying to apply for loans. This is what the energy conservation and emission reduction loan program (phase III) of IB is designed to tackle.

Take the EPC industry as an example. Many energy-saving service suppliers in China are “asset-light” SMEs, which have limited financial strength. Once fund chain is disrupted during the operation of their projects, such enterprises can hardly sustain their development. The weak financial strength also further restricts the capability of energy-saving service suppliers to obtain loans from commercial banks. For instance, they often encounter the predicament of lacking guaranties like fixed assets when applying for financing to banks.

Targeting at this problem, by providing the energy conservation and emission reduction loan (phase III), IB provides SMEs with the guarantee measures that they need but lack, so as to effectively alleviate the financing and guarantee difficulties of SMEs in energy-saving projects.

General Manager Liang said: “In actuality, the energy conservation and emission reduction loan (phase III) provides a loan guarantee for these companies free of charge, helping them to receive financing from the bank smoothly and sparing the financing cost in seeking other guaranties”.

Zou Qiong told the reporter: “They (IB) have a team specialized in green finance, which has a thorough understanding to EPC business and well-placed risk analysis of contracts.”

The reporter discovers that the energy conservation and emission reduction loan program (phase III) of IB is a standardized product, not merely some separate financing cases. With replicability and sustainability, the product can help more energy conservation and emission reduction projects of SMEs to have access to scaled financing support.

Apart from the financing difficulty resulting from the own characteristics of small- and medium-sized energy-saving service suppliers, in the aspects of system and policy, it is not easy for enterprises in the field of green finance to receive financing. It requires the joint efforts of the banking industry and external policy constitutor to further bring into play the important role of green finance.

As learnt by the reporter, IB stipulates that the scale of other loans shall be transferred to green finance preferentially. Though there is only a limited amount of increased loans each year, at least RMB 10 billion should be allocated to green finance each year.

From 2005 till now, IB has incorporated green finance into its all routine processes as a business concept. Rather than merely an introduction of concept, it is an overall reform in terms of development strategy, organizational structure, mechanism and system, and institutional process.
Starting from energy efficiency, IB has, in developing the business, first taken into account how to provide financing to enterprises, gradually put the entire banking function into green finance, such as emission right and carbon trading, and developed the business into a bigger one by engaging the bank in intermediary transactions, establishing the settlement system, and setting up the trading institution.